A reverse mortgage is a loan taken out against your primary residence that does not require repayment for as long as you live in the home. It is different from a traditional loan in that there are no monthly payments to make. Because you cannot fail to make monthly payments on the loan, you will not lose your home for failure to make a payment as with other mortgage loans. In return for this security, the equity in your home transfers to the lender on a regular basis. From your viewpoint as the homeowner, you are using it up, in a sense spending the value of your home for the purpose of funding your living expenses.

The amount of money obtained by the reverse mortgage depends on the program selected, the age of the individuals obtaining the reverse mortgage, the value of the home, and the qualifying interest rates.

What Exactly Is Reverse About a Reverse Mortgage?

The reason that a reverse mortgage is called that is because, as time goes on and the homeowner receives payments against the loans, the amount of debt against the property rises as the equity in the property falls. This is the direct opposite of a traditional mortgage in which the monthly payments reduce the amount of debt against the home and the equity rises with each payment made. Simply put, with a traditional mortgage, a homeowner turns their income into equity and with a reverse mortgage homeowners turn their equity into income.

What Are the Qualifications for Obtaining a Reverse Mortgage?

In order to obtain a reverse mortgage, in most cases the owners of the home must be over the age of 62. The home must be the primary residence of the homeowners and be lived in for more than half of the year.

Any debts against the home must be paid off before obtaining a reverse mortgage or, if properly arranged, a cash advance obtained by the reverse mortgage can be used to pay off the debts immediately. Generally, the home must be a single family property, a condominium, or a planned unit development.

How Is the Reverse Mortgage Paid to the Homeowner?

The reverse mortgage can be paid to the homeowners in a number of ways. However it is paid, it can be used in any way they wish, as long as all of the liens against the property have been paid off.

One way, perhaps the one used least often, is that it can be paid as an immediate cash advance disbursed to the homeowners on the first day of the loan. Naturally this method requires a certain discipline and a sound plan to use and protect the money. More often the reverse mortgage is paid as a credit line account that allows the homeowner to withdraw money as a cash advance up to the limits determined by the mortgage agreement. It can also be paid to the homeowners in regular monthly installments for a specified number of years or for as long as the homeowners live in the home. If the homeowners choose, the loan can also be paid as a combination of all three payment plans. The loan is repaid when the last surviving borrower dies or sells the home.